Retailers Are Increasingly Becoming Owners In NYC’s Hottest Corridors
New York City has seen a slew of luxury retailers acquiring prestigious Fifth Avenue space in recent months — but they aren't the only ones.
End users of NYC’s retail real estate are increasingly looking to become owners, new data shared with Bisnow shows. With retail rents still below their peak, the prospect of avoiding increases by owning their real estate is appealing to users. Plus, with a harsh environment for existing owners seeking to refinance, the time to strike is now for opportunistic would-be buyers, experts said.
“It's simply smart economics,” said Joanne Podell, Cushman & Wakefield executive vice chairman for retail services. “You don't have to worry about increases.”
Around 54% of retail sales and 60% of the dollar volume in 2023 came from end-user deals, according to Avison Young data provided to Bisnow. That is even higher if vacant retail spaces are included, jumping to 66% of transactions. In 2022, end-user deals made up 37% of transactions and 23% of the dollar volume.
Some of those sales signal a shift in the ownership dynamics on one of Manhattan’s plushest retail corridors, with luxury retailers reaching for ownership and upgrades to their spaces.
LVMH-owned Tiffany & Co. signed a deal to renovate its 727 Fifth Ave. space for $250M last year, as did jeweler Cartier in 2022. Swiss watchmaker Rolex and LVMH are also planning to construct multimillion-dollar flagship spaces on the retail strip, according to JLL data shared with Bisnow.
As 2023 drew to a close, Prada signed the priciest deal on Fifth Avenue since the start of the pandemic. The luxury fashion house bought its 68K SF Manhattan flagship store at 724 Fifth Ave. for $425M after leasing space in the building since 1997. Just weeks later, Gucci and Balenciaga’s parent company, Kering, announced it agreed to spend $963M on a 115K SF retail condominium at 717 Fifth Ave.
JLL’s data reveals other smaller but significant sales that have taken place in recent months. Swiss fashion house Akris purchased three condos at 727 Madison Ave. and 21 E. 66th St. for $40.6M at the beginning of the year, and the Italian family owner of apparel retailer Brandy Melville last month spent $33M on 545 Broadway in SoHo.
The type of tenants making these acquisitions think about their purchases as generational, Avison Young Tri-State Investment Sales Group Head James Nelson told Bisnow. Signing a 20-year lease and then having to deal with rent increases or being forced to find a new flagship location isn’t something that any tenant wants to deal with, which makes buying more appealing if it’s possible.
“It's really taking control of your destiny as a tenant,” he said. “It's a lot more commonplace in Europe. You see a lot of these European brands who understand the value and ownership and have that generational way of thinking.”
Gradually increasing retail rents form part of the backdrop for the new dynamic in the sales market.
Rents aren't as high as they were in 2015 and 2016, which was the NYC retail market’s previous peak, Nelson told Bisnow. Average rents across Manhattan’s retail corridors then were $3,485 per SF, he said. They were $2,308 per SF last year.
That makes acquiring properties appealing to retailers, who can likely sell their spaces at a later date if they want to relocate or simply want to generate cash, he said. In the meantime, they benefit from the property’s appreciation.
For sellers, there is an advantage in offloading even some of their most prized retail space. Owners of all asset classes have said that refinancing while interest rates are well above their pandemic-era lows isn’t appealing, with some of the high-profile Fifth Avenue deals showing that even those properties aren’t immune.
Wharton Properties founder Jeff Sutton was the seller on both the Prada and Kering deals, although SL Green had an 11% stake in the 717 Fifth Ave. property. While the splashy price raised eyebrows, there were questions over 717 Fifth’s financial health. Its ownership venture had faced a foreclosure suit from New York Life Insurance in 2022 after allegedly defaulting on a $300M loan.
“Lenders have become more conservative,” Nelson said. “A lot of these owners might be faced with, ‘OK, well, you've got to pay down your loan or pay a higher interest rate.’”
Still, the high prices are a demonstration of confidence in NYC’s retail strips — and potentially indicators that the optimism seen in retail rents as 2023 drew to a close isn’t going anywhere soon, Cushman & Wakefield’s Podell said.
“The commitment by retailers to own talks a great deal about how they value our retail world. I'm excited about that,” she said. “New York is still, if not the greatest, one of — and Fifth Avenue, Madison Avenue, 57th Street are some of the best retail in the world.”